There’s a pallor sitting over the more traditional property asset classes, with changing consumer needs, reduced transaction volumes and ongoing Brexit uncertainty impacting the market. But the Specialist Property sector is bucking the trend. This asset class includes hotel investments, healthcare and student accommodation, and has attracted tens of billions in investment over the last few years.
Today, student accommodation is an increasingly popular investment option. The number of UK students in further education is the highest it has ever been, and there is a population bulge in the 16-20 year old age bracket that will see the number of school leavers starting university and requiring student accommodation increase again over the next four years.
As such, the market itself is underpinned by sound fundamentals. Demographic changes and increases in state support have driven student numbers and housing demand. While some cities have been overdeveloped and are now suffering from a supply glut, locations such as Coventry, Bath and Canterbury have considerable undersupply.
At Cogress, we consider student accommodation to be an attractive investment opportunity. And we’re not alone. The UK Purpose Build Student Accommodation (PBSA) sector is the second most mature PBSA market in the world after the USA, and accounted for 31% of total global investment in 2018. Interest from institutional and overseas investors is strong, with Knight Frank recently valuing the sector at £50bn.
With this degree of interest and competition, it can be easy to fall into the trap of assuming any PBSA project is a sound choice. The level of oversupply in certain markets means it is crucial investors identify the areas were new-build activity has historically been low and where current supply cannot meet demand.
What to look for in a student accommodation scheme
There are a number of key characteristics we look for when assessing PBSA schemes. Top of the list is a location that includes a high-ranking university, with the potential to attract both overseas and domestic students. Good transport links, large numbers of students or a growing student body are also important, as are an abundance of local amenities, bars, restaurants and entertainment venues. We also look for strategic cities containing multiple universities.
Demand and oversupply are also key points. PBSA developers typically build one of two units; studio apartments and cluster flats. There are a couple of regional markets where the development of one has outstripped the other. In Southampton and Glasgow, for instance, oversupply of the more expensive studio style unit has meant that, while the number of units coming online has roughly kept pace with the student population, there is an undersupply of cluster-type accommodation. This has led to a development trend towards cheaper accommodation in markets such as Southampton and Glasgow, as providers attempt to balance the market.
Regional performance of PBSA
More mature markets, like Liverpool, Newcastle and Leeds are well serviced and present less opportunity. Similarly, locations like Aberdeen and Durham, with an abundance of development land, have experienced a boom in PBSA. Many of these developments are aimed at the ‘luxury’ end of the market, for which there is simply no demand in these places.
Locations like London and Exeter are more complicated. These have traditionally seen a lot of PBSA investment. However, we’re noticing a slow down now as the future pipeline becomes jeopardised by a lack of available land and planning restrictions. This means that undersupply in these markets may well become a problem over the next couple of years.
The markets to watch are scattered throughout the midlands, south east and into Wales. Coventry, for example, has been relatively overlooked as investors scrabble to develop nearby Birmingham, but developers are starting to notice its potential. There’s a huge student body there, with top-ranked Warwick University, Coventry University and some of the UK’s largest manufactures, many with apprentice and graduate schemes, all located nearby. Our research shows that around 69% of students here are unable to access university halls or PBSA schemes.
Similarly, cities like Bath and Canterbury boast great universities but an unexplained dearth of PBSA accommodation. The imbalance in supply and demand here is played out in the rental market, which has outperformed the UK average – further suggesting an imbalance.
The continued appeal of student accommodation
Despite Brexit uncertainty and poor performance in other commercial property asset classes, the UK’s PBSA sector continues to deliver strong returns to investors. This asset is particularly dependent on regional performance, and it is vital that investors understand the local market fundamentals before committing to a project.
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 2019. Cogress. Coventry Investment Presentation, August 2019.
2018. Knight Frank. Global Student Property 2019. Knight Frank.
2018. Knight Frank. UK Student Housing Update. Knight Frank.